"Financial Freedom" After Retirement Is No Longer a Dream! 5 Key Factors to help Double Your Wealth! - Part 2

In the previous article, we discussed the five key elements to achieving financial freedom after retirement: the extent of living expenses, the impact of inflation, continuing to earn income after retirement, tax planning, and additional expenses. In this article, we will further elaborate on investment return strategies after retirement, with a focused analysis on tax planning and additional expenses.

1. Avoid being "Equity Rich, Cash Poor"

Should you continue to earn money after retirement? Absolutely! But how? Everyone should beware of being "Equity Rich, Cash Poor." When retiring, many Chinese people focus on paying off their mortgage, leading to very limited cash flow. While they may own significant assets (like real estate), they lack the cash flow needed to respond flexibly to unforeseen circumstances. This is especially problematic during economic recessions like during COVID. If people with assets lack cash flow, they may hesitate to invest boldly in real estate or stocks, thus losing good opportunities.

In fact, allocating "income-generating assets" is key to managing finances after retirement! For example, converting 15-30% of assets (like real estate or stocks) into income-generating assets, such as annuities, can provide a stable cash flow. Some annuities even increase income as the market rises, ensuring lifetime income. With a stable income, it’ll be easier to take out loans to invest in real estate and invest in stocks. In the long term, higher investment returns will multiply assets and effectively overcome inflation.

2. Tax Planning

Many people mistakenly believe that their tax burden will decrease after retirement. However, income taxes could be higher after retirement, due to the loss of mortgage interest deductions, child deductions, retirement plan contributions, and business-related tax breaks. Therefore, tax savings are crucial! Transferring assets into tax-exempt tools can reduce your tax burden. It is recommended to transfer two-thirds to three-quarters of assets into tax-exempt assets, such as a Roth IRA or life insurance. By converting a traditional IRA to a Roth IRA and paying a one-time tax, future earnings will be tax-free, while also avoiding the required minimum distributions (RMD) after retirement, further increasing long-term returns.

3. Additional Expenses

After retirement, we often face unplanned additional expenses. For example, medical expenses may increase, especially with Medicare Part D, where high-income individuals need to prepare for additional costs. As we age, doctor visits may become more frequent, and other expenses, such as replacing cars or increased travel opportunities, all require money.

One additional cost that many people may not anticipate is the increase in property taxes. In many areas outside of California, property taxes are adjusted based on market prices, and as property values rise, property taxes can significantly increase. For instance, if a property’s value doubles, the property tax burden may also double.

Therefore, when we encounter additional expenses and are impacted by inflation, two important things need to be done to maintain a good quality of life. First, invest wisely to increase income and avoid becoming "Equity Rich, Cash Poor"; second, plan taxes and expenses effectively to ensure financial security after retirement. If these aspects are properly managed, not only can you enjoy a happy retirement, but you can also leave more wealth to your children.

If you are interested in retirement financial planning or have any questions, feel free to contact us at TransGlobal. You are also welcome to join our free "Asset and Tax Planning for the Second Half of Life" seminar. We will cover topics such as how to increase cash flow, how to retire comfortably through investments and tax savings, and how to avoid hidden expense traps. All these questions will be answered in detail!

This article is for informational purposes only and should not be construed as financial advice or legal advice. Please consult with a professional to develop a strategy that is right for you. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. TransGlobal Advisory, LLC (TGA) does not provide legal, tax, or accounting advice. You should consult your personal tax or legal advisor before making any financial decisions.